Tapinator Reports Second Quarter 2018 Financial Results

NEW YORK, August 14, 2018 /PRNewswire/ -- Tapinator, Inc. (OTCQB: TAPM), a developer and publisher of mobile games and applications on the iOS, Google Play and Amazon platforms today announced financial results for the quarter and six months ended June 30, 2018 and the filing of its quarterly report.

For the quarter ended June 30, 2018, Tapinator achieved revenue of approximately $734,000, bookings of $717,000, net loss of approximately $557,000, and adjusted EBITDA* of approximately $10,000, representing year-over-year changes of 18%, -5%, 70% and 126%, respectively. 

For the six-month year-to-date period ended June 30, 2018, Tapinator achieved revenue of approximately $1,622,000, bookings of $1,600,000, net loss of approximately $1,473,000, and adjusted EBITDA* of approximately $170,000, representing year-over-year changes of 13%, -7%, 39% and 4,744%, respectively.

Quarterly Highlights

• Quarterly revenue of $733,673; up 18% year-over-year
• Quarterly bookings of $ 716,880; down 5% year-over-year*
• Quarterly net loss of $557,052, up 70% year-over-year
• Quarterly adjusted EBITDA of $10,193; up 126% year-over-year*

Year-To-Date Highlights

• Six-month revenue of $1,622,361; up 13% year-over-year
• Six-month bookings of $1,599,958; down 7% year-over-year*
• Six-month net loss of $1,472,932, up 39% year-over-year
• Six-month adjusted EBITDA of $170,297 up 4,744% year-over-year*
• $1,340,296 in cash as June 30, 2018; up 443% from $246,755 as of December 31, 2017

* A table has been included in this press release with non-GAAP adjustments to the Company's revenue resulting in bookings (a non-GAAP measure) and non-GAAP adjustments to the Company's net loss, resulting in positive adjusted EBITDA (a non-GAAP measure) for the relevant periods.

Andrew Merkatz, President & CFO of Tapinator, commented on the results, "Overall, our year-to-date results have met our expectations.   We now have a clean balance sheet and a pure-play strategy focused on Full-Featured Mobile Games and Applications with evergreen characteristics that can become 'Forever Franchises' for Tapinator.  We have fundamentally proven this plan with Video Poker Classic and Solitaire Dash and we look forward to further expanding upon this strategy for the remainder of 2018 and 2019 with both new and existing titles."

Ilya Nikolayev, CEO of Tapinator, added, "We have five new mobile game and application launches planned for the remainder of 2018. In particular, we are excited about Dice Mage Duel and our two freemium subscription products. As we previously mentioned, Dice Mage Duel is the multiplayer sequel to the original Dice Mage and Dice Mage 2 titles.  Each predecessor game was featured as a "New Game We Love" on iOS, and has great player reviews (average score above 4.5 out of 5.0). We have high expectations for Dice Mage Online based on the performance of its predecessors and the significant improvements we have made to this multiplayer version of the title. Our first freemium subscription product, Dot to Dot – Relaxing Puzzles, has just soft launched in Canada. Through Dot to Dot, a user can create beautiful pictures by connecting dots, as part of a meditative, relaxing experience. Once the pictures are formed, the user can bring them to life through our unique coloring functionality. We have seen the success of coloring applications as top grossing, subscription apps and believe that dot-to-dot gameplay is complementary without competing head-on with existing incumbents. We will soon be announcing the details around our second freemium subscription product. For now, we can disclose that, similar to Dot to Dot, the application targets a large market with evergreen functionality and, we believe, has top grossing potential."

Product Highlights
The Company ended Q2 with 404 active mobile games, of which 18 were released in the quarter.  As of June 30, 2018, Tapinator had 101 mobile titles in its portfolio that had each achieved at least one million downloads, up from 94 mobile games that had reached this milestone at the end of 2017.

Full-Featured Games:
The Company continues to have significant conviction regarding its Full-Featured Games and Applications business. The Company's strategy for its Full-Featured business is to create franchise-type products that are evergreen in nature (also known as "Forever Franchises"). In order to achieve this objective, the Company is attempting to develop products that achieve customer lifetime values (LTVs) that exceed the customer acquisition cost, at scale. The Company has been able to achieve this, at certain download volumes, for two products: Video Poker Classic and Solitaire Dash. The Company believes that, in 2018, it will be able to improve core metrics and scale both of these games via marketing, as well as launch new products that can join Video Poker Classic and Solitaire Dash as Forever Franchises. Our Full-Featured product highlights include:

Solitaire Dash 2.0 (released on June 14, 2018): our horse-racing themed tri-peaks solitaire game received a significant update for its 2.0 version. The user interface was completely redesigned in the form of a map to visually represent player progress. This redesign has resulted in a map featuring 324 unique levels across 18 racetracks. Players now have many additional ways to increase earning potential and in-game rewards, including purses for completing racetracks and "sponsorships" that are awarded for completing in-game content. In short, Solitaire Dash 2.0 now combines the proven systems of top grossing card games with its own unique features to create a best-in-class solitaire product. Early results from the game update have exceeded management's expectations and have resulted in D1 – D14 player retention improvements of 31%-59% from previously strong baseline metrics.  Pursuant to the global distribution deal that we announced yesterday with Cheetah Mobile, we now plan to further accelerate product development of Solitaire Dash to fully leverage the additional marketing resources that we expect will be applied to the title as a result of this exciting partnership.

Dot to Dot – Relaxing Puzzles (soft launch in Canada in August 2018, global launch in October 2018): Through this freemium subscription product, a user can create beautiful pictures by connecting dots, as part of a meditative, relaxing experience. Once the pictures are formed, the user can bring them to life by using our unique coloring functionality.

Freemium Subscription Product 2 (scheduled for global launch September 2018): we will be providing a more detailed application description as the release date approaches.

Dice Mage Duel (soft launch in Canada in August 2018, global launch in October 2018): with this upcoming sequel to the critically acclaimed Dice Mage and Dice Mage 2 games, magical dice dueling is back! Battle other mages in this turn-based multiplayer card game. Summon monsters, conjure spells, and roll mystic dice! Collect cards, find and upgrade powerful loot to become the ultimate Dice Mage. The first two Dice Mage games have strong short-term retention and average revenue per daily active user (ARPDAU). Management believes that the introduction of multiplayer game-play along with other key changes to the game will result in strong long-term retention thereby providing the opportunity to profitably scale the product.

Video Poker Classic 2.0 (scheduled for launch December 2018): Video Poker Classic is one of the top three video poker games on iOS and has over 10,000 reviews with an average score of 4.7 out of 5.0. One of the reasons for the title's success is its consistency with a real-world casino experience. Our upcoming 2.0 version will maintain this consistency while adding functionality and game types that players have shown to appreciate in a casino setting.

Rapid-Launch Games:
As communicated over the past eighteen months, we previously recognized that our Rapid-Launch Game product line had peaked, thus we have chosen to pivot the strategic focus of Tapinator to our Full-Featured Games business, where we believe the opportunity to be greater and more sustainable.  While our Rapid Launch games library continues to be significant in scale and provide a long tail of meaningful revenue to the Company, recent changes in the Google Play store have reduced the discovery of our existing Rapid Launch Games and have likely made the introduction of new Rapid Launch Games to be more challenging. As a result of these changes, we expect to see a materially negative impact on our Rapid Launch Game results for the remainder of this year.  This impact is included in our updated 2018 guidance provided below.

Blockchain Games:
In January of this year, we announced the creation of a new subsidiary to develop and publish distributed apps and games that leverage blockchain technology.  Since then, we have launched two fully functioning pilot products, Dark Winds and BitPainting.  We recognized that the blockchain gaming market was in its infancy.  To that end, we previously communicated to our shareholders that we did not expect these efforts to contribute materially to our 2018 revenues.   We are extremely proud of the high quality of both of these pilot products and how they were brought to market both efficiently and on schedule.  That being said, we are disappointed in the slow commercial adoption of both products.  While we will continue to selectively develop both products, we are taking a cautious go-forward approach regarding blockchain games as we recognize that the addressable market may currently be too small to generate significant near term value for our shareholders.

Quarterly Summary of Results
Tapinator recorded gross revenues of $733,673 and bookings of $716,880 for the three-month period ended June 30, 2018.  This compares to gross revenues of $620,096 and bookings of $750,489 for the comparable three-month period in 2017. 

The increase in revenue is attributable primarily to an increase in Consumer App Store Transactions, driven from within both our Full-Featured Games and our Rapid-Launch Games, which was partially offset by a decrease in Advertising revenue, driven by declines from within our Rapid-Launch Games.

The decrease in bookings was caused by a 4% bookings decrease in our Rapid Launch Games, a game category that we believe to have peaked, and a 5% decrease in our Full-Featured Games bookings, resulting from significant reductions in marketing spend for our Video Poker Classic and Solitaire Dash titles during the comparable periods.

For the three-month period ended June 30, 2018, the Company incurred an operating loss of $553,984, as compared to an operating loss of $267,378 for the comparable three-month period in 2017.  The increase in operating loss was primarily attributable to $419,766 in non-cash, stock based compensation expense incurred for the comparable period.

The Company recorded a net loss of $557,052 for the three-month period ended June 30, 2018, as compared to a net loss of $1,862,119 for the comparable three-month period in 2017.  The net loss decrease was primarily attributable to $1.59 million of non-cash charges related to debt discount amortization, interest expense and loss on debt extinguishment recorded in the prior period.

For the three-month period ended June 30, 2018, the Company achieved adjusted EBITDA (a non-GAAP measure of earnings discussed below) of $10,183, as compared to adjusted EBITDA of ($37,823) for the comparable three-month period in 2017.  The increase in adjusted EBITDA is primarily due to higher revenue in 2018.

Year-To-Date Summary of Results
Tapinator recorded gross revenues of $1,622,361 and bookings of $1,599,958 for the six-month period ended June 30, 2018.  This compares to gross revenues of $1,432,890 and bookings of $1,719,334 for the comparable six-month period in 2017.  

The increase in revenue is attributable primarily to an increase in Consumer App Store Transactions, driven from within both our Full-Featured Games and our Rapid-Launch Games, which was partially offset by a decrease in Advertising revenue, driven by declines from within our Rapid-Launch Games. 

The decrease in bookings was caused by a 6% bookings decrease in our Rapid Launch Games, a game category that we believe to have peaked, and a 5% decrease in our Full-Featured Games bookings, resulting from significant reductions in marketing spend for our Video Poker Classic and Solitaire Dash titles during the comparable periods.

For the six-month period ended June 30, 2018, the Company incurred an operating loss of $1,146,655, as compared to an operating loss of $445,717 for the comparable six-month period in 2017.  The increase in operating loss was primarily attributable to $1,040,182 in non-cash, stock based compensation expense incurred for the comparable periods.

The Company recorded a net loss of $1,472,932 for the six-month period ended June 30, 2018, as compared to a net loss of $2,416,376 for the comparable six-month period in 2017.  The net loss decrease was primarily attributable to $1.9 million of non-cash charges related to debt discount amortization, interest expense and loss on debt extinguishment recorded during the prior period.

For the six-month period ended June 30, 2018, the Company achieved adjusted EBITDA (a non-GAAP measure of earnings discussed below) of $170,297, as compared to adjusted EBITDA of $3,516 for the comparable six-month period in 2017.  The increase in adjusted EBITDA is primarily due to higher revenue in 2018.

Tapinator's cash balance increased to $1.34 million as of June 30, 2018 from the period ended December 31, 2018 when the cash balance was $247 thousands.  The increase in cash during the period is primarily attributable to $2.6 million in net proceeds received from the issuance of common stock which was offset by a $1.14 million principal repayment in conjunction with the retirement of our Senior Secured Convertible Debenture.

2018 Full-Year Non-GAAP Guidance Update (Unaudited)
Primarily as a result of the recent accelerated weakening in our Rapid-Launch Games, as discussed above, we are lowering our previously issued revenue, bookings, net income and adjusted EBITDA guidance for 2018 as follows:

About Tapinator
Tapinator (OTCQB: TAPM) develops and publishes mobile games and applications on the iOS, Google Play and Amazon platforms.  Tapinator's portfolio includes over 300 mobile gaming titles that, collectively, have achieved over 450 million player downloads, including games such as ROCKY™, Video Poker Classic, Solitaire Dash and Dice Mage. Tapinator generates revenues through the sale of branded advertisements and via consumer transactions, including in-app purchases. Founded in 2013, Tapinator is headquartered in New York, with product development teams located in North America, Europe and Asia.  Consumers can find high-quality mobile entertainment wherever they see the 'T' character logo, or at http://tapinator.com.

Forward Looking Statements
To the extent that statements contained in this press release are not descriptions of historical facts regarding Tapinator, they are forward-looking statements reflecting the current beliefs and expectations of management made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "feel," "may," "will," "expect," "anticipate," "estimate," "intend," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. Forward-looking statements in this release involve substantial risks and uncertainties that could cause the development and monetization of our mobile games, future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, our belief that our pipeline of Full-Featured Games will continue to produce positive results, particularly in terms of our expectation that a majority of our revenue growth will occur in the third and fourth quarters of this year, our goal of creating franchise-type games with product lifespans of at least five to ten years in the Full-Featured Games category, our belief that we can continue to scale "Video Poker Classic" and "Solitaire Dash" to achieve our desired customer metrics, our belief that our Dot to Dot and upcoming second freemium game will have top grossing potential, our belief that our new partnership with Cheetah Mobile will allow us to accelerate development of Solitaire Dash, our belief that multiplayer game-play will lead to the ability to profitably scale such products, and our belief that our Rapid Launch Games will continue to materially decline. Tapinator undertakes no obligation to update or revise any forward-looking statements. The quoting and trading of the Company's common stock on the OTC Market Group's OTC Link quotation system is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with the Company's operations or business prospects. As a result, there may be volatility in the market price of the shares of the Company's common stock for reasons unrelated to operating performance. Moreover, the OTC Market Group's OTC Link quotation system is not a stock exchange, and trading of securities on it is often more sporadic than trading of securities listed on the NASDAQ Stock market or another securities exchange. Accordingly, stockholders may have difficulty reselling any of their shares. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to the business of the Company, see Tapinator's Risk Factors which are available within the disclaimers section of Tapinator.com.

Non-GAAP Financial Measures
We have provided in this release the non-GAAP financial measures of Bookings and adjusted EBITDA, as a supplement to the consolidated financial statements, which are prepared in accordance with United States generally accepted accounting principles ("GAAP"). Management uses Bookings and adjusted EBITDA internally in analyzing our financial results to assess operational performance and liquidity. The presentation of Bookings and adjusted EBITDA is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with GAAP. We believe that both management and investors benefit from referring to Bookings and adjusted EBITDA in assessing our performance and when planning, forecasting and analyzing future periods. We believe Bookings and adjusted EBITDA is useful to investors because it allows for greater transparency with respect to key financial metrics we use in making operating decisions and because our investors and analysts use them to help assess the health of our business. We have provided reconciliations between our historical 2017 Bookings and adjusted EBITDA to the most directly comparable GAAP financial measures below.  Some limitations of Bookings and adjusted EBITDA are as follows:

• Bookings does not reflect that we defer and recognize online game revenue over the estimated life of durable virtual goods;
• Adjusted EBITDA does not include the impact of stock-based expense, impairment of intangible assets previously acquired, acquisition-related transaction expenses, contingent consideration fair value adjustments and restructuring expense;
• Adjusted EBITDA does not reflect income tax expense;
• Adjusted EBITDA does not include other income or expense, which includes foreign exchange gains and losses and interest income or expense;
• Adjusted EBITDA excludes depreciation and amortization of intangible assets.  Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and
• Other companies, including companies in our industry, may calculate adjusted EBITDA differently or not at all, which will reduce their usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA along with other financial performance measures, including revenue, net income (loss), diluted net income (loss) per share, cash flow from operations, GAAP operating expense, GAAP operating margin and our other financial results presented in accordance with GAAP. See the GAAP to non-GAAP reconciliations below for further details:

CONTACT
Tapinator Investor Relations
investor.relations@tapinator.com
+1-914-930-6232

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SOURCE Tapinator, Inc.